Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Q4 2011 Earnings Presentation
39 slides from Encompass Health's earnings presentation, Feb 23, 2012
Slide 1: Fourth Quarter 2011 Earnings Call Supplemental Slides
Fourth Quarter 2011 Earnings Call Supplemental Slides
Slide 2: Forward-Looking Statements
The information contained in this presentation includes certain estimates, projections and other forward- looking information that reflect our current outlook, views and plans with respect to future events, including legislative and regulatory developments, strategy, capital expenditures, developmen
Slide 3: Table of Contents
Table of Contents 3 4-6 7 8 9 10 11-12 2012 Guidance - Adjusted EBITDA ……………………………………………………………………………………………………………………………………………………………13 2012 Guidance - EPS ……………………………………………………………………………………………………………………………………….14 Income Tax Considerations…………………………………………………………………………………………………………………………………………15 Adjusted Fre
Slide 4: Q4 2011 Summary (Q4 2011 vs. Q4 2010)
Q4 2011 Summary (Q4 2011 vs. Q4 2010) Revenue growth of 5.5% ― Inpatient revenue growth of 6.1% Discharge growth of 2.1%; same-store discharge growth of 1.7% Revenue per discharge increase of 4.0% Improved operating leverage and labor productivity Adjusted EBITDA(1) for the quarter of $122
Slide 5: Q4 2011 Summary (cont.)
Q4 2011 Summary (Q4 2011 vs. Q4 2010) (cont.) Completed clinical information system (CIS) pilot ― Five-year, system wide roll-out beginning in 2012 Strengthened the balance sheet ― Reduced debt by approx. $73 million ― Exercised option to purchase the property associated with the lease on Health
Slide 6: Q4 2011 Summary (cont.)
33.7 29.1 15.0 20.0 25.0 30.0 35.0 3.01 2.54 1.5 2.0 2.5 3.0 3.5 HealthSouth Functional Outcomes Continue to Outpace Industry Average HealthSouth Average UDS Average* FIM Gain LOS Efficiency * Average = Expected, Risk-adjusted Source: UDSmr Database – On Demand Report: Q4 2011 Report Q4 2011 Summa
Slide 7: Revenues (Q4 2011 vs. Q4 2010)
Revenues (Q4 2011 vs. Q4 2010) Revenue increase of 5.5% driven by inpatient revenue growth of 6.1% ― Discharge growth of 2.1%; same-store discharge growth of 1.7% ― Revenue per discharge increased 4.0% Price adjustments (Medicare and managed care) Higher percentage of Medicare patients Highe
Slide 8: Expenses (Q4 2011 vs. Q4 2010)
Expenses (Q4 2011 vs. Q4 2010) Q4 Q4 Increase/ (Millions) 2011 2010 (Decrease) Salaries and benefits 251.4$ 237.5$ 5.9% Percent of net operating revenues 48.5% 48.4% 10 bps EPOB (employees per occupied bed) 3.46 3.50 (1.1%) Hospital-related expenses 111.8$ 111.7$ 0.1% (other operating, supplies, occ
Slide 9: Adjusted EBITDA
Adjusted EBITDA Change Q4 Full Year +$10.8M +$56.6M +9.6% +13.8% • Revenue growth driven by higher volumes and price • Improved operating leverage and labor productivity Adjusted EBITDA (1) 9 (Millions) 2011 2010 2011 2010 Net operating revenues 518.1$ 490.9$ 2,026.9$ 1,877.6$ Operating expenses: Sa
Slide 10: Earnings per Share from Continuing Operations
Earnings per Share from Continuing Operations (1) Q4 2011 reflects: • Higher Adjusted EBITDA • Decreased interest expense • Approx. 22%(6) effective tax rate Full-year 2011 reflects: • Higher Adjusted EBITDA • Decreased interest expense • Approx. 19%(6) effective tax rate Earnings per Share 10 (1) I
Slide 11: Adjusted Free Cash Flow
Adjusted Free Cash Flow Adjusted free cash flow for Q4 2011 benefited from: ― Higher Adjusted EBITDA ― The absence of swap-related payments ($17.9 million Q4 2010) ― Approx. $16 million for timing of interest payments (paid in Q3 2011) ― Lower interest expense 11 (Millions) 2011 2010 2011 2010 129
Slide 12: Adjusted Free Cash Flow (cont.)
Adjusted Free Cash Flow(1) (cont.) $181.4 $56.6 $4.1 $40.7 ($12.9) Adjusted Free Cash Flow 2010 Adjusted EBITDA Cash Interest Expense Swap-Related Payments Maintenance Capital Working Capital & Other Adjusted Free Cash Flow 2011 $243.3 ($26.6) (Millions, except per share data) 2011 2010 $ % Adjusted
Slide 13: 2012 Guidance – Adjusted EBITDA
2012 Guidance – Adjusted EBITDA (1) 2012 Adjusted EBITDA $475 million to $485 million (1) Reconciliation to GAAP provided on slides 35, 36, 38, and 39. Considerations: Revenue growth of 3.8% to 5.2% ― Discharge growth between 2.5% and 3.5% ― Revenue per discharge growth between 2.0% and 2.5% ― Hom
Slide 14: 2012 Guidance - EPS
2012 Guidance - EPS Earnings per Share from Continuing Operations Attributable to HealthSouth (1) $1.32 to $1.39 Considerations: Assumes provision for income tax of approx. 40% in 2012 vs. approx. 19%(2) in 2011 Cash taxes expected to be $7 to $10 million Basic share count of 94.5 million shar
Slide 15: Income Tax Considerations
Income Tax Considerations GAAP Considerations: •As of 12/31/11, the Company had an ending balance of approx. $1.3 billion in federal NOLs and a remaining valuation allowance of approx. $50 million, primarily related to state NOLs. • 2011 effective tax rate was approx. 19%(1)(2) • Expect effective ta
Slide 16: Adjusted Free Cash Flow Considerations
Adjusted Free Cash Flow (1) Considerations (1) Reconciliation to GAAP provided on slide 34. (2) Definition of adjusted free cash flow is net cash provided by operating activities of continuing operations minus capital expenditures for maintenance, net settlements on interest rate swaps, dividends pa
Slide 17: Priorities for Reinvesting HealthSouth's Free Cash Flows
Priorities for Reinvesting HealthSouth’s Free Cash Flows 17 Debt Reduction • Debt prepayment • Purchase leased properties (limited opportunity) •Growth in core business Bed expansions De novo hospitals Acquisitions − Free standing IRFs − Hospital unit IRFs Growth Prioritie s Shareholder Distri
Slide 18: Priorities for Reinvesting HealthSouth's Free Cash Flows (cont.)
Priorities for Reinvesting HealthSouth’s Free Cash Flows (cont.) 18 •Growth in core business 2012 Assumptions (millions) Bed expansions $20 to $25 (80-100 beds) De novo hospitals $50 to $70 (complete Ocala; start 4 others) Acquisitions (target 2/year) TBD − Free standing IRFs − Hospital unit $
Slide 19: Priorities for Reinvesting HealthSouth's Free Cash Flows (cont.)
Priorities for Reinvesting HealthSouth’s Free Cash Flows (cont.) 19 Debt Reduction • Debt prepayment • Purchase leased properties (limited opportunity) Shareholder Distribution • Share repurchase ($125 million authorization) • Cash dividends (one time or regular) Alternate Opp o rtuni tie s Capital
Slide 20: Appendix
Appendix
Slide 21: Business Outlook: 2012 to 2014
Business Outlook: 2012 to 2014 Business Model • Adjusted EBITDA CAGR: 5-8% (1)(2) • Adjusted Free Cash Flow CAGR: 12-17% (1)(2) Strategy 2011 2012 2013 2014 Delevering (3) Achieved < 3.0x Debt to EBITDA < 3.0x Debt to EBITDA (subject to operating environment) Growth Same-store Growth (Includes bed e
Slide 22: Business Outlook: Revenue Assumptions
Business Outlook: Revenue Assumptions Revenue Volume • 2.5% to 3.5% annual growth (excludes acquisitions) • Includes bed expansions, de novos and unit consolidations Pricing 72% 8% 20% FY 2012 (1) FY 2013 FY 2014 Q4 11 - Q3 12 Q4 12 - Q3 13 Q4 13 - Q3 14 Mark t basket update (2) 2.9% 2.8% 2.9% Healt
Slide 23: Business Outlook: Expense Assumptions
Business Outlook: Expense Assumptions Expense Salaries & Benefits (1) Hospital Expenses • Other operating expenses and supply costs tracking with inflation • Occupancy costs relatively constant as percent of revenue • Bad debt expense of approx. 1.3% to1.5% 2012 2013 2014 Merit increases (2) 2.25-2.
Slide 24: Historic Discharge Growth vs. Industry
HealthSouth’s volume growth has outpaced competitors’ (1) Data provided by UDSMR, a data gathering and analysis organization for the rehabilitation industry; represents ~ 65-70% of industry, including HealthSouth sites. (2) Includes consolidated HealthSouth inpatient rehabilitation hospitals classif
Slide 25: Our Track Record
Our Track Record ($ in millions, except EPS) (1) Reconciliation to GAAP provided on slides 35 – 39. (2) 2010 income from continuing operations attributable to HealthSouth includes an income tax benefit of ~$741 million primarily due to the reversal of a substantial portion of the valuation allowance
Slide 26: Debt and Liquidity
($ Billions) Year-End 2010 Goal: 3.75x to 4.00x (1) Based on 2008 and 2011 Adjusted EBITDA of $322.6 million and $466.2 million, respectively; reconciliation to GAAP provided on slides 35 – 39. Debt and Liquidity Dec. 31, Dec. 31, 2011 2010 Cash Available 30.1$ 48.3$ Revolver Total Line 500.0$ 500.0
Slide 27: Debt Schedule
Debt Schedule (1) Based on 2011 and 2010 Adjusted EBITDA of $466.2 million and $409.6 million, respectively; reconciliation to GAAP provided on slides 35, 36, 38, and 39. 27 Change S&P Moody Dec. 31, Dec. 31, in Debt (Millions) Corporate B+ B1 2011 2010 vs. YE 2010 Advances under $500 million revolv
Slide 28: Revenues & Expenses (2011 vs. 2010)
Revenues & Expenses (2011 vs. 2010) Increase/ Revenues (millions) 2011 2010 (Decrease) Inpatient 1,866.4$ 1,722.7$ 8.3% Outpatient and other 160.5 154.9 3.6% Consolidated net operating 2,026.9$ 1,877.6$ 8.0% (Actual Amounts) Discharges 118,354 112,514 5.2% Net patient revenue / discharge 15,770$ 15,
Slide 29: Revenues & Expenses (Sequential)
Revenues & Expenses (Sequential) Q4 Q3 Increase/ Revenues (millions) 2011 2011 (Decrease) Inpatient 480.1$ 458.8$ 4.6% Outpatient and other 38.0 38.9 (2.3%) Consolidated net operating 518.1$ 497.7$ 4.1% (Actual Amounts) Discharges 30,066 29,350 2.4% Net patient revenue / discharge 15,968$ 15,632$ 2.
Slide 30: Payment Sources (Percent of Revenues)
Payment Sources (Percent of Revenues) 2011 2010 2011 2010 Medicare 72.8% 71.6% 72.0% 70.5% Medicaid 1.4% 1.6% 1.6% 1.8% Workers' compensation 1.5% 1.5% 1.6% 1.6% Managed care and other discount plans (1) 19.5% 20.6% 19.8% 21.3% Other third-party payors 2.0% 2.2% 2.0% 2.3% Patients 1.2% 1.3% 1.2% 1.3
Slide 31: Operational and Labor Metrics
Operational and Labor Metrics (1) (1) All metrics have been reclassified to reflect current continuing operations. (2) Represents discharges from HealthSouth’s 96 consolidated hospitals in Q4 2011, 94 consolidated hospitals in Q3 2011, Q2 2011, Q1 2011, Q4 2010 and Q3 2010, 92 consolidated hospitals
Slide 32: Outstanding Share Summary and Warrant Information
Outstanding Share Summary and Warrant Information (Millions) Q4 Q4 FY FY 2011 2010 2011 2010 Basic Shares outstanding (1) (2) 93.3 92.8 93.3 92.8 Diluted Shares outstanding (1) (2) (3) 109.1 108.8 109.2 108.5 Q4 Q4 FY FY 2011 2010 2011 2010 Basic Shares outstanding (1) (2) 93.3 92.8 93.3 92.8 Dilute
Slide 33: Adjusted EBITDA History
Adjusted EBITDA (1) History 33 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 (Millions) 2011 2011 2011 2011 2010 2010 2010 2010 2011 2010 Net operating revenues 518.1$ 497.7$ 505.1$ 506.0$ 490.9$ 460.8$ 467.3$ 458.6$ 2,026.9$ 1,877.6$ Operating expenses: Salaries and benefits (2) (251.4) (245.0) (241.6) (244.0) (237.5) (
Slide 34: Adjusted Free Cash Flow Reconciliation
Adjusted Free Cash Flow Reconciliation of Net Cash Provided by Operating Activities to Adjusted Free Cash Flow (Millions) 2011 2010 2011 2010 2009 2008 129.6$ 67.1$ 342.7$ 331.0$ 406.1$ 227.2$ 0.3 (2.8) (9.1) (13.2) (5.7) (32.5) Capital expenditures for maintenance (1) (15.7) (13.3) (50.8) (37.9) (3
Slide 35: Reconciliation of Net Income to Adjusted EBITDA
Reconciliation of Net Income to Adjusted EBITDA (1)(3) (1) (2) (3) – Notes on page 38. (in millions, except per share data) Total Per Share Total Per Share Total Per Share Total Per Share Total Per Share Net income 91.5$ 32.3$ 68.3$ 62.5$ 254.6$ (Income) loss from disc ops, net of tax, attributable
Slide 36: Reconciliation of Net Income to Adjusted EBITDA
Reconciliation of Net Income to Adjusted EBITDA (1)(3) (1) (2) (3) – Notes on page 38. (in millions, except per share data) Total Per Share Total Per Share Total Per Share Total Per Share Total Per Share Net income 50.5$ 57.5$ 41.9$ 789.9$ 939.8$ Income from disc ops, net of tax, attributable to Hea
Slide 37: Reconciliation of Net Income to Adjusted EBITDA
Reconciliation of Net Income to Adjusted EBITDA (1) (3) (in millions, except per share data) Total Per Share Total Per Share Net income 281.8$ 128.8$ Income from disc ops, net of tax, attributable to HealthSouth (32.5) (17.7) Net income attributable to noncontrolling interests (29.4) (34.0) Income f
Slide 38: Reconciliation Notes for Slides 35-37
Reconciliation Notes for Slides 35-37 1. Adjusted EBITDA is a non-GAAP financial measure. The Company’s leverage ratio (total consolidated debt to Adjusted EBITDA for the trailing four quarters) is, likewise, a non- GAAP financial measure. Management and some members of the investment community util
Slide 39: (Millions) 2011 2010 2011 2010 2009 2008 Net cash provided by operating activities 129.6$
(Millions) 2011 2010 2011 2010 2009 2008 Net cash provided by operating activities 129.6$ 67.1$ 342.7$ 331.0$ 406.1$ 227.2$ Provision for doubtful accounts (6.1) (1.6) (21.0) (16.4) (30.7) (23.0) Professional fees—accounting, tax, and legal 4.8 3.4 21.0 17.2 8.8 44.4 Interest expense and amortizatio